IBM sells IBM Server Unit to Lenovo

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Ginni Rometty continues to make the right moves at IBM, slashing low margin and declining business units. As reported by both companies today, Lenovo is acquiring IBM’s x86 server business: This includes System x, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations.

Last month IBM reported the server business was pulling down margins and revenue as demand has fallen for x86 servers, and IBM’s revenue fell for the seventh quarter in a row. Hardware profits were down $750 million in the fourth quarter from the previous year.

The deal is approximately US$2.3 billion, two billion of which will be paid in cash and the rest in Lenovo stock.

The deal must clear regulatory hurdles, which may slow the closure, but the US has leaned in favor of sales of US assets to China in general.

This leaves IBM with a mainframe business, and the POWER7 processor-based supercomputer line, but aside from that, the company is moving pretty quickly from hardware, and refocusing on its software, consulting and services business lines.

I think this is a smart move, and it allows the company to redouble its efforts in work tech, which is going to grow at a fast clip in coming years, with many estimating that it could reach over 300 billion/year in the next few years.

The enterprise computing market is going through a top-to-bottom restructuring and recalibration, and cloud computing services — as pioneered by Amazon — are going to drop the price of enterprise and internet computing to a fraction of the pre-cloud costs. There will be no margins left at the end of this consolidation, only pennies.

IBM earlier sold its PC line of business to Lenovo — another prescient move — at the moment of commoditization. and avoid the lure of building tablets, an area that has ensnared other giants of the last wave of computing, like Microsoft, HP, and Cisco (remember the Cius?).

The future for IBM has to be software: better support for the new way of work that is evolving in today’s workforce and workplace. And  leaving the war for hardware to the Amazons, Apples, Googles, Lenovoa, and Samsungs is an acceptance of a new world, a post-PC and post-server world.